The Following Article first published on the Students for Liberty website was Written by Olumayowa Okediran, a member of Students For Liberty’s International Executive Board.
Africa has been the focus of many studies by economists and development experts. Though there exist diverse views about the way forward for Africa, the continent has seen little development in contrast to the rest of the world. Peter Bauer (1915-2002) spoke with resounding clarity on solutions to the economic penury of the developing world and Africa in particular. Bauer’s interests were related mostly to development economics and foreign aid. He sought to show the demerits of central planning, foreign aid and protectionism. He criticized the idea that the disadvantaged had no motivation to improve their condition and that third world countries are underdeveloped due to limited resources available to them, a theory peddled by several foreign aid advocates.
Bauer was interested in Africa and based his study on first hand observation of the continent. Barun S. Mitra, director of the Liberty Institute in India in his preface to the book Peter Bauer and the Economics of Prosperity, stated that Bauer’s insight into poverty was a result of his intensive work in Africa and Asia in the 1950s and 1960s. By studying West African economies closely, Bauer published West African Trade (1954) where he emphasized the importance of trade for economic development. All his life, he debunked the supposed necessity of government-to-government financial interventions in developing countries and emphasized the benefits of trade as a more suitable alternative.
Despite Bauer’s careful study of third world economies and his warnings about the demerits of foreign aid, every year, Africa’s begging bowl is constantly replaced with a bigger one. Between 2000 and 2008, foreign aid flow to sub-Saharan Africa increased from $12bn to $36bn, a whopping 300 percent increase, without any significant visibility in real economic development as a result of these huge amounts of money. One would wonder why countries like the United States, which tops the list of foreign aid donors, continue to give, despite its obvious ineffectiveness. Subsidizing African governments inevitably increases the power of government, escalates corruption and as Dambisa Moyo in her book Dead Aid that she dedicates to Bauer states that it is neither necessary nor sufficient for economic development. Benevolence is not the reason why foreign countries give to Africa: it is simply economic control, not economic development.
Bauer was also convinced that there was an overemphasis on the limited availability of resources as the reason underdeveloped countries are the way they are. Unlike many development experts of his time, he did not consider the problems of underdeveloped countries to be the lack of resources, but the lack of emphasis on the role of trade, both domestic and international. He believed that an inadequate understanding of how established institutions influence economic behavior is the main cause of underdevelopment.
African countries are guilty as charged: they sit on huge amounts of resources like oil, diamonds, gold, iron, cobalt, uranium, copper, bauxite, silver, and petroleum – not to mention the fertile land capable of supporting the growth of cash crops like cacao beans which are always in demand. Unfortunately the role of trade especially amongst African countries is awfully insignificant. Inter-African trade is terribly low.
Valentine Rugwabiza, deputy director general of the WTO, states that trade amongst African countries stands at about 10 per cent of the continent’s overall trade. Africa’s share in world trade is terribly minute and the continent is perhaps the most fragmented continent in the world with 54 countries and numerous borders erecting trade barriers. Established institutions also adversely affect trade: infrastructure is terribly inadequate, making Africa perhaps the most expensive continent in which to conduct business. Rugwabiza, in a speech at the University of Witwatersrand in Johannesburg, South Africa last year stated that it costs around $900 to ship a container from South-East Asia to Africa, while it costs almost $2000 to ship the same container from Africa to South-East Asia. Whereas it costs $935 to import a container from South-East Asia to Africa, it costs almost $2500 to import the same container from Africa. According to the World Bank Report titled De-fragmenting Africa, Shoprite Pty Ltd spends $20,000 a week on securing import permits to distribute meat, milk and plant-based goods to its stores in Zambia alone.
Bauer was right: Africa’s challenge is not the limited availability of resources. It is simply the lack of emphasis on the role of trade as a vehicle for economic development. Africa has the potential to boost economic growth, but before that can happen, Bauer must be listened to.
